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TMI Blog2010 (9) TMI 213X X X X Extracts X X X X X X X X Extracts X X X X ..... fendant No. 4 were to be granted, it would result in overlooking the injunction operating against them in terms of order dated 26-3-2003. Taking any view of the matter, therefore, the relief as claimed by the defendant No. 4 cannot be countenanced. The Learned Single Judge in our opinion has rightly considered this material aspect to reject the claim of the defendant No. 4 and hold that the defendant No. 4 has no right to represent. Further, the subject-matter of two suits pending in this Court were not property of defendant No. 2 and interim-relief can be considered only in aid of and to preserve the subject-matter of the suit. For that reason, even the conclusion reached by the Learned Single Judge for dismissing the Notice of Motion taken out by defendant No. 4 merits no interference. X X X X Extracts X X X X X X X X Extracts X X X X ..... a) and (b) above; (d )for costs; (e )for such further and other reliefs as the nature and circumstances of the case may require." N/M No. 534 of 2002 in Suit No. 509/2001 (filed on 21-2-2002) "(a )That pending the hearing and final disposal of the above suit, this Hon'ble Court may be pleased to appoint Administrator and/or a Board of Directors of defendant No. 2 having representation from the plaintiffs and defendant No. 4 with an independent Chairman. (b )That pending the hearing and final disposal of the above Suit, Court Receiver, High Court, Bombay or some other fit and proper person be appointed as Receiver of Air Separation Plant belonging to the 2nd defendant company installed at Mukund Ltd. at Kalwa, Thane Distt. with all powers under Order 40 rule 1 of CPC 1908. (c )That pending the hearing and final disposal of the Suit, the 2nd defendant be restrained by an order and injunction of this Hon'ble Court from selling, disposing of, encumbering or creating third party interest in its assets and properties including the Air Separation Plant installed at the factory of Mukund Ltd. at Kalwa. (d )That pending the hearing and final disposal of the suit this Hon'ble Court ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in addition allowing them to purchase 30,000 shares from the public making an aggregate of 75,001 shares equivalent to 50 per cent + 1 share of defendant No. 2 company. As per the said SPA as agreed between the plaintiffs and defendant No. 1, the defendant No. 1 made application to Foreign Investment Promotion Board (hereinafter referred to as 'FIPB' for the sake of brevity) for allowing them to invest in 75,001 shares of defendant No. 2 company independently. 5. As a matter of fact before executing the said SPA dated 23-6-1997, the defendant No. 1 had already entered into Share Purchase and Co- operation Agreement with defendant No. 3 company on 12-5-1995. This fact was not disclosed to the plaintiffs before execution of said SPA dated 23-6-1997 with the plaintiffs. The defendant No. 3 is an Indian company engaged in the business of industrial gases. Notably, the defendant No. 3 is a competitor in the business conducted by defendant No. 2 company. 6. On the other hand, according to defendant No. 3, the defendant No. 1 before entering into the said SPA Agreement dated 23-6-1997 with the plaintiffs, did not make disclosure thereof to it, which they were obliged to, considering t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d thus :-- "(a )(i) For a declaration that the acquisition of the said 30,000 shares pursuant to the public offer is illegal, null and void ab initio and of no legal effect whatsoever. ( ii) For a permanent order and injunction restraining the defendant from exercising any rights in respect of the said 30,000 shares including and in particular voting rights. (b )(i) For a declaration that the said agreement dated 23rd June, 1997 (exhibit B hereto) stands validity terminated and/or avoided; ( ii) that the 1st defendant be ordered and decreed to deliver/return to the respective plaintiffs the said 45,001 shares together with all accretions thereto from 23rd June, 1997 on such terms as this Hon'ble Court directs; ( iii) for the purpose aforesaid the 1st defendant be ordered and decreed to do and perform all acts, deeds, matters, and things and to execute all documents, deeds and writings in furtherance thereof. ( iv) for a permanent order and injunction restraining the defendant from transferring and/or registering and/or taking any steps to transfer and/or register the said firm or body corporate including the 1st and/or 3rd and/or 41th defendant without the consent of the plai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neficial interest in the shares of defendant No. 2 including those mentioned in Ex. 'A' hereto without first offering the same to the plaintiffs in terms of clause 6.1 of the Share Purchase Agreement dated 23rd June, 1997. Being Ex. 'B' hereto. (iii)Obtaining any award, decree from any forum or court in violation of clause 6.1 of the Share Purchase Agreement dated 23rd June, 1997 being Ex. 'B' hereto. (iv)Making any claim before the Arbitrators or any court which if granted will amount to a breach or violation of the provisions of clause 6.1 of the said Share Purchase Agreement dated 23rd June, 1997 being Ex. 'B' hereto; (v )procuring any breach of the provisions of clause 6.1 of the said Shares Purchase Agreement dated 23 June, 1997 being Ex. 'B' hereto. (d )that pending the hearing and final disposal of the suit defendant No. 2 herein be restrained by an order of injunction from recording any transfer of shares from the 1st defendant to any party without the plaintiffs consent. (d.1)That pending the hearing and final disposal of the suit it just necessary and proper that the Court Receiver, High Court, Bombay or any other fit and proper person be appointed Receiver of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Hon'ble Court, directing the 1st defendant to offer the said 75,001 shares to the plaintiffs in accordance with the procedure prescribed in clause 6.1 of the Share Purchase Agreement dated 23rd June, 1997; (f )for a declaration that the acquisition of the said 30,000 shares pursuant to the Public Offer is illegal, unlawful, null and void and of no legal effect whatsoever; (g )for a declaration that the said Agreement dated 17th February, 2000 and the said Consent Award dated 21st September, 2009 are not binding on the plaintiffs and/or defendant No. 2 and/or that the same are illegal, null and void ; (h)for a permanent injunction restraining the defendant Nos. 1, 3 and 4 from :-- (i )acting in pursuance of the Share Purchase Agreement dated 23rd June, 1997; (ii )exercising any rights in respect of the said 75,001 shares (in particular voting rights in connection therewith) and/or from receiving any dividends, rights in respect of the same; (iii)exercising any rights including its beneficial ownership in, to, upon or in respect of the said 75,001 shares; (i)that the defendants be restrained by permanent order and injunction of this Hon'ble Court from transferring and/or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otion No. 3112/2003 and followed by Notice of Motion No. 29/2006 in Appeal 840/2003; Notice of Motion No. 3113/2003 in Appeal 841/2003; Notice of Motion No. 3115/2003 in Appeal No. 857/2003; Notice of Motion Nos. 1308/2005, 3956/2005, 4118/2007, 1973/2008, 1418/2008 in Appeal No. 855/2003. The above Motions are filed by the appellants, praying for the following reliefs: N/M No. 3112/2003 in Appeal No. 840/2003 (filed on 14-10-2003) "(a )that pending the hearing and final disposal of the Appeal, the operation of the judgment and order dated 26-3-2003 passed on the Notice of Motion No. 3230 of 2000 and other connected Notices of Motions be stayed; (b )that pending the hearing and final disposal of the Appeal, leave be granted to the appellants to implement and enforce the consent Arbitral Award dated 21-9-2000, subject to the final result of the Appeal; (c )that pending the hearing and final disposal of the Appeal, the respondent Nos. 1 to 8 (Orig. plaintiffs) be restrained by an order and injunction of this Hon'ble Court from :-- (i )directly or indirectly exercising their rights as shareholders of the respondent No. 10 (Orig. defendant No. 2); (ii )vote in favour of any resol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01 have abated and/or become infructuous and/or cannot be proceeded with and the same be dismissed. (d )For ad interim reliefs in terms of prayers (a), (b) & (c ) above. (e )For costs of this Notice of Motion. (f )For such other and further relief as this Hon'ble Court may deem fit in the circumstances of the case." N/M No. 1308 of 2005 in Appeal No. 855/2003 (filed on 27-4-2005) "(a )That pending the hearing and final disposal of the above Appeal this Hon'ble Court may be pleased to restrain the respondent Nos. 1 to 8 by themselves, their servants, agents and all persons claiming through/under them by an order and injunction of this Hon'ble Court from exercising any rights in respect of the said 75,001 shares as also from representing to the public at large that they have acquired the said 75,001 shares or have any beneficial interest therein. (b )That pending the hearing and final disposal of the above Appeal this Hon'ble Court may be pleased to restraining the respondent No. 10 by themselves, their servants and agents by an Order and injunction of this Hon'ble Court from giving effect to the resolution passed by its Board of Directors in the meeting held on 11th March, 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Mukund Ltd. at Kalwa, Thane Distt. with all powers under Order 40 rule 1 of CPC 1908. (c )That pending the hearing and final disposal of the Appeal the respondent No. 10 be restrained by an Order and injunction of this Hon'ble Court from selling, disposing of, encumbering or creating third party interest in its assets and properties including the Air Separation Plant installed at the factory of Mukund Ltd. at Kalwa. (d )That pending the hearing and final disposal of the suit this Hon'ble Court may be pleased to appoint independent Auditor from the panel of this Hon'ble Court to audit the books of account of the respondent No. 10 Company and to submit his report to this Hon'ble Court. (e )For ad interim reliefs in terms of prayers (a), (b), (c ) & (d) above. (f )For costs of this Notice of Motion. (g)For such other order and reliefs as this Hon'ble Court deems fit and proper." N/M No. 1418 of 2008 in Appeal No. 855/2003 (filed on 10-4-2008) "(a )That pending the hearing and final disposal of the above Appeal, this Hon'ble Court may be pleased to appoint an administrator and/or a Board of Directors of respondent No. 10 having equal representation from the Appellants and resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entering upon and/or carrying on any development activity or construction activity or from selling, disposing of, encumbering or creating third party interest or parting with possession of its immovable property of the respondent No. 10 situated at L.B.S. Marg, Mulund (W), Mumbai - 400 080. (h)That pending the hearing and final disposal of the above Appeal, respondent No. 10 their servants and agents and all persons claiming through/under them be restrained by an order and injunction of this Hon'ble Court from assigning their alleged Development right or creating third party right or interest in respect of the immovable property of the respondent No. 10 situated at L.B.S. Marg, Mulund (W), Mumbai - 400 080. (i )for ex parte ad interim reliefs in terms of prayers (a) to (h) above. (j )for costs of this Notice of Motion. (k )for such other order and direction as this Hon'ble Court may deem fit in the circumstances of the case." N/M No. 1973 of 2008 in Appeal No. 855/2003 (filed on 6-6-2008) "(a )That pending the hearing and final disposal of the above Appeal, respondent Nos. 1 to 10, their servants, agents, subordinate officers be restrained by an order and injunction of this H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the respective parties, proceeded to answer the controversy in the following manner. In the first place, he has adverted to the main issue between the parties as to whether the first defendant has committed breach of clause 6.1 of the said SPA dated 23-6-1997 by transferring the 75,001 shares of defendant No. 2 company in favour of the 4th defendant. In that, was the transfer of said shares by the defendant No. 1 company in favour of company of Hoechst Group? It has then adverted to the stand of the plaintiffs that although overtly defendant No. 1 and defendant No. 3 represented that the shares were transferred to defendant No. 4 in which the defendant No. 1 held 51 per cent shares, it was an eye wash. The Learned Single Judge has accepted the claim of the plaintiffs that, considering the circular transactions executed between the defendant No. 1, defendant No. 3 and defendant No. 4, simultaneously, on the same day, i.e., 17-2-2000, it was amply clear that the control of the fourth defendant was given to the Goyal Group who was controlling defendant No. 3 and that Group would end up holding 51 per cent of the shares of defendant No. 4 company. If so, the transfer of 75,001 share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the plaintiffs and the grievance of the plaintiffs will have to be decided on its own merits. That position was clarified even by the Apex Court in its order dated 5-4-1999. 19. The Learned Judge has noticed that the real dispute between the defendant No. 3 and defendant No. 1 was about the manner in which the defendant No. 1 proceeded to acquire the shares of defendant No. 2 from the plaintiffs on its own and also incorporating clause 6.1 in the agreement between the defendant No. 1 and the plaintiffs so as to prevent the defendant No. 3 from jointly participating in the management of defendant No. 2 company. This act on the part of the defendant No. 1 was in violation of agreed strategy between the defendant No. 3 and defendant No. 1. The Learned Single Judge has held that from the surrounding circumstances emerging from the record, it was amply clear that the shares in question were acquired by defendant No. 1 for the purpose of joint acquisition by defendant No. 1 and defendant No. 3. That intention was withheld from the plaintiffs and instead the plaintiffs were assured of the fact that it is the defendant No. 1 company who wanted to provide modern technology and technical k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conduct of the defendant No. 1 and defendant No. 3 company in forming defendant No. 4 company. Besides, by circular transactions effected on the same day, the entire 75,001 shares of defendant No. 2 company were transferred by defendant No. 1 in favour of defendant No. 4 so that the Goyal Group would be in the control of defendant No. 4. The Learned Judge has found that even if the defendant No. 1 wanted to collaborate with defendant No. 3, in future, was obliged to comply with the regime of the SEBI Regulations of public announcement of such intention. The Learned Judge has analyzed the stand taken by the defendant No. 3 in the proceedings before the Delhi High Court which clearly suggests that the agreement between the defendant No. 3 and defendant No. 1 arrived was that the defendant No. 1 would not have major stand in any new business as it would result in direct competition. Further, the defendant No. 3 asserted that its name ought to have been mentioned as joint acquirer in the public announcement. The Learned Single Judge, therefore, concluded that the said SPA dated 23-6-1997 was in breach of the SEBI Regulations as it fails to disclose the name of defendant No. 3 who was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1 from transferring and/or selling the shares without offering the same to the plaintiffs in terms of clause 6.1 or for obtaining any award or decree from any forum in violation of clause 6.1. It has also adverted to the order of this Court dated 29-2-2000 and the fact that neither the defendant No. 1 nor the defendant No. 3 brought to the notice of this Court that in fact they had already entered into an agreement on 17-2-2000 purporting to settle their disputes by transferring 75,001 shares of defendant No. 2 to defendant No. 4. The said agreement, however, was disclosed for the first time on 21-7-2000. The argument of defendant No. 3 that it was not necessary to disclose the agreement dated 17-2-2000 did not find favour with the Learned Single Judge. The Learned Single Judge, however, held that to bypass the orders of this Court, defendant Nos. 1 and 3 took out interim applications before the Supreme Court without joining plaintiffs as party thereto and asked for reliefs so as to negate the interim order passed by this Court which was operating against the said defendants. The Learned Single Judge has found that it was an attempt to overreach the orders of this Court. Even for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t dated 12-5-1995 obliged defendant No. 1 to offer the shares to defendant No. 3 or the Goyals and transfer of shares to defendant No. 4 must be taken as perfectly valid. This argument has been negatived on the opinion that the observations of Delhi High Court were in suit between defendant No. 1 and defendant No. 3 and cannot bind the plaintiffs. Moreover, the dispute between the defendant No. 1 and defendant No. 3 before the Delhi High Court was entirely different and will be of no avail. 32. As a result, the Learned Single Judge dismissed Notice of Motion No. 1231/2000 filed by the Defendant No. 4 and disposed of Notice of Motion No. 2933/2000 filed by defendant No. 1 as not pressed. In view of dismissal of Notice of Motion No. 1231/2000, even Notice of Motion No. 3230/2000 filed by defendant No. 3 came to be dismissed. The Learned Single Judge then proceeded to deal with the Notice of Motion No. 534/2000 filed by defendant No. 4 for appointment of Court Receiver in respect of Air Separation Plant belonging to defendant No. 2 Company. This Motion has also been rejected on the opinion that defendant No. 4 merely claims to be owner of shares of defendant No. 2 company in terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt No. 4 cannot claim any relief against the property of defendant No. 2. Hence, the Notice of Motion No. 584/2002 filed by the defendant No. 4 came to be dismissed. 34. Insofar as Notice of Motion No. 392/2001 filed by the plaintiff, the impugned order records that the same was not on Board but was taken on Board and disposed of as not pressed. Therefore, the plaintiffs moved the same Learned Single Judge who by his order dated 2-5-2003 recorded the correct position that the said Motion was in fact on Board for hearing along with other proceedings. It is further recorded that the Court intended to allow the said Notice of Motion which is for injunction restraining the defendants from transferring the shares, exercising rights as a beneficial owner and acting under the Consent Award. It has been clarified that the injunction is consistent with the findings recorded in the Judgment already pronounced. As a result, Paragraph 54 of the Judgment came to be deleted and instead substituted by order to the effect that the Notice of Motion No. 392/2001 in Suit No. 509/2001 taken out by the plaintiffs is allowed in terms of prayer clauses (a) & (b). 35. Against this common Judgment and or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n disclosed by the plaintiffs? The plaintiffs on the other hand have asserted that the fact regarding the execution of agreement dated 5-12-2002 was brought to the notice of the Learned Single Judge at the earliest opportunity. In that, it was pointed out to the Learned Judge taking up Notice of Motions on 13th March, 2003 that the plaintiffs and defendant No. 1 have settled their differences. This was done at the outset during the hearing. That is reinforced from the affidavit dated 17-3-2003 of Mr. Ajit Shukla seeking disclosure of the said Settlement Agreement. That application was disallowed by the Learned Single Judge. As the defendants 3 and 4 have admitted disclosure made by the plaintiffs of the said agreement on 13-3-2003 itself, it is not open for them to urge that the suits should be dismissed at the threshold on account of non-disclosure of the said agreement. As a matter of fact, the affidavit of Ajit Shukla was produced in the present proceedings by the plaintiffs along with their reply. Thus understood, the grievance of the defendants is devoid of merits. 38. The next question is whether the suits have become infructuous due to the agreement dated 5-12-2002, for whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,001 shares of "BOCL" to MHL was contrary to the "SEBI Takeover Code", in breach of clause 6.1 of the "Ruia Agreement" and also in violation of the orders of the Bombay High Court in Suit No. 2499 of 1999 and therefore, void and unenforceable. In view of the aforesaid, the parties agree that the beneficial interest in the said 75,001 shares of "BOCL" remains with "MGG". (6)In the circumstances, "MGG" and the "Ruias" have agreed to fully and finally settle all their disputes and differences by rescinding the "Ruia Agreement" on the terms and conditions set forth in this Agreement. However, "MGG" is not in a position to return to the "Ruias" the share certificates and other relevant documents for the 45,001 shares of "BOCL" (which is the subject-matter of the "Ruia Agreement") as they are not in MGG's possession. "MGG" has no knowledge of the current whereabouts of the said share certificates and other documents pertaining to the 45,001 shares and is not in a position to secure return/delivery of the same. (7)As "MGG" is no longer interested in acquiring any shares in "BOCL", as a further part of the settlement, it is hereby agreed that "MGG" hereby sell/reverts/transfers/divests ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ten escrow instructions agreed to by "Ruias" and "MGG". (11)(a)The parties confirm and acknowledge that as the foregoing 45,001 shares of "BOCL" have not been registered in the name of "MGG" in the records of "BOCL", the said shares continue to be registered in the names of the "Ruias". Consequently, the rescission of the "Ruia Agreement" does not involve any transfer from "MGG" to the "Ruias" in the books of "BOCL" as the "Ruias" continue to be the registered shareholders. Nevertheless, if any permission, approval or notification is required under Indian Law for implementing this Agreement, including without limitation, the permission of the "RBI" for making the payment of US $ 154,642, the "Ruias" shall be solely responsible and liable for obtaining all such necessary approvals or permissions or for making the necessary filings/notifications, at the sole cost and expense of the "Ruias". (b)Similarly, the parties confirm and acknowledge that the foregoing 30,000 shares of "BOCL" have also not been registered in the name of "MGG" and continue to be in the name of the Indian Public shareholders. Consequently, "Ruias" will be solely responsible for doing all acts, deeds and things ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmercial and payments terms of the settlement recorded in this Agreement. (14)It is further warranted that the parties hereto are competent to and/or have authority to enter into this Agreement to all its effects. The necessary authority/declarations/resolutions/power of attorneys authorizing either parties' representatives are annexed as Annexure 2. (15)On execution of this Agreement, "Ruias" agree :-- (a)not to prosecute the following proceedings pending in the Bombay High Court and in Supreme Court of India against "MGG" or its affiliates or its directors, officers or employees (excluding "MHL" and Goyal MG Gases Ltd. But including directors nominated by "MGG" on the Board of "MHL" and/or Goyal MG Gases Ltd.) :-- (i)Civil Suit No. 2499 of titled Shyam Madan Mohan Ruia v. Messer Griesheim GmbH. (ii)Civil Suit No. 509 of 2001 titled Shyam Madan Mohan Ruia v. Messer Griesheim GmbH. (b)withdraw or apply for withdrawal or have the following proceedings dismissed for want of prosecution against "MGG" or its directors or directors nominated by "MGG" on the Board of "MHL" and/or Goyal MG Gases Ltd.: (i)Civil Contempt Petition No. 101 of 2000 in the civil suit filed by the "Ruias" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll proceed. If so, it is not as if the entire suit has become infructuous and no cause of action whatsoever survives as is sought to be contended. 40. Having regard to the agreement arrived at between plaintiffs and defendant No. 1 dated 5-12-2002, the situation has undergone change and the controversy has become narrow. The defendant No. 1 by the said agreement now accepts that transfer of 75,001 shares of defendant No. 2 company to defendant No. 4 by it was contrary to the SEBI Regulations and also in breach of clause 6.1 of the said SPA Agreement dated 23-6-1997. The defendant No. 1 also accepts that the transfer of said shares in favour of defendant No. 4 were also in violation of the orders passed by this Court in Suit No. 2499/1999. Further, for each of these reasons, the said transfer would be void and unenforceable. The defendant No. 1 has admitted that the beneficial interest in the said 75,001 shares of defendant No. 2 company remained with it. It further agrees to rescind the said SPA Agreement dated 23-6-1997 on the terms agreed upon between the parties. The defendant No. 1 has, however, expressed its inability to return the said shares as it was not in physical posses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est of the company and relinquished their right of management of the defendant No. 2 company. It is not in dispute that the plaintiffs are majority shareholders of the defendant No. 2 company and are in control of the management of the defendant No. 2 company. The plaintiffs agreed to sell substantial number of shares to the defendant No. 1 keeping in mind overall interest of the defendant No. 2 company and the assurance given by the defendant No. 1 to provide modern technology and technical know-how to the defendant No. 2 company to segment its productivity and consequently its profitability. The governing condition on which the defendant No. 1 showed interest in sharing modern technology and technical know-how to defendant No. 2 was that the defendant No. 1 should be given substantial shareholding in the defendant No. 2 company with a right of management. When this agreement was executed between the plaintiffs and the defendant No. 1, from the record as has been rightly adverted to by the Learned Single Judge, it is noticed that at no point of time, the defendant No. 1 disclosed the fact that they have already entered into Share Purchase Co-operation Agreement with defendant No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly or indirectly, or more than 50 per cent of the issued and outstanding voting stock or ownership interest of the Company." 43. The understanding arrived at as per this clause, is that as and when the plaintiffs or defendant No. 1 intended to sell entire or any part of the shares of the company held or acquired by it, it shall first offer such shares to the other party. Only in the event of the other party not agreeing to purchase the shares so offered for the price and other terms and conditions, it would be open to sell the said shares to any person other than the competitors of the offeree. However, this right of first refusal was not made applicable to sale of shares by the defendant No. 1 to a company directly or indirectly controlled by or under direct or indirect common control with the Hoechst Group. 44. The real question is whether clause 6.1 has been breached by the defendant No. 1 by effecting the transfer of said shares of defendant No. 2 acquired by it to defendant No. 4. Until the authorised officer of defendant No. 1 filed affidavit in this Court, there was some doubt whether the defendant No. 1 had major shareholding of defendant No. 4 to the extent of 51 per ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew that the defendant No. 4 is not and was never intended to be a Hoechst Group of Company. Instead, it has been formed only to enable the defendant No. 1 to extricate from its obligation under clause 6.1 of SPA and at the same time enable the defendant No. 3 to accomplish its design to some how take over the control of defendant No. 2 company. On this finding, it would necessarily follow that the transfer of shares in favour of defendant No. 4 was not consistent with the arrangement provided in clause 6.1 of the said SPA between plaintiffs and defendant No. 1. As a result, that transfer is in breach of order of injunction passed by this Court which is still in force. 46. The next question is whether clause 6.1 itself is illegal and void. The defendants 3 and 4 contend that by virtue of section 111A of the Companies Act, the shares or debentures and any interest therein of a company shall be freely transferable. Whereas, the arrangement provided by clause 6.1 infracts the principle of free transferability of shares. Resultantly, the said clause 6.1 is in the teeth of section 111A of the Companies Act. To buttress this submission, reliance has been placed on the decision of the Ape ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd of Directors to regulate the transfer of shares and transferability of the shares of the company. The bye-laws specifically contemplated a restrict- tion of transferability otherwise than to a member of the company. While considering the legal position in India, the Learned Single Judge adverted to the decision of the Supreme Court in V.B. Rangaraj's case (supra) wherein the agreement between the members of the family, who was the only shareholder of the private company which imposed a restriction on the shareholders' right to transfer the shares was contrary to the articles of association and was not binding on the company or its shareholders. The Learned Single Judge has then analyzed the case of M.S. Madhusoodhanan (supra) and extracted portion of the said decision. Thereafter, the Learned Single Judge proceeded to hold that both these cases deal with a private company. It is further held that the dictum of Apex Court in M.S. Madhusoodhanan's case (supra) expressly clarified that as far as private companies are concerned, the Articles of Association restrict shareholders' rights to transfer the shares and prohibit invitation to the public to subscribe to shares or debentures ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction, simply because the postulate of free transferability was enunciated as a matter of legislative policy when Parliament introduced section 111A into the Companies' Act, 1956. That is a binding precept which governs the discourse on transferability of shares. The word "transferable" is of the widest possible import and Parliament by using the expression "freely transferable", has reinforced the legislative intent of allowing transfers of shares of public companies in a free and efficient domain. 62. The effect of clause 7 of the Protocol Agreement is to create a right of pre-emption between the petitioner and the respondent in the event that either of them seeks to part with or transfer its shareholding in MSL. In that event, the party desirous to transfer its shareholding is obligated to furnish a first option to the other for the purchase of the shares at such rate, as may be agreed to between the parties or decided upon by arbitration. The consequence of clause 7 of the Protocol Agreement, which has been incorporated in the Articles of Association, is to preclude sale to or purchase by the members of the public of the shares, which are offered for sale if the offer is accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a public company by the provisions of section 111A. Once that be the position, the submission urged on behalf of the respondent cannot be accepted. In essence, the submission of the respondent is that the provisions of section 111A should be read as being subject to a contract to the contrary. A restriction to that effect cannot be read into the provision of section 111A; firstly because, such a restriction is not mentioned in the statutory provision; secondly, the word "transferable" is of the widest import; and thirdly, the context in which the provision has been introduced, is susceptible to the inference that it should be given a wide meaning. Where the language of the statute is plain and unambiguous, neither the consequence nor the conduct of parties would be of relevance. Reliance was sought to be placed on a notification that was issued on 27th June, 1961 by which, in exercise of powers conferred by section 28(2) of the Securities Contracts (Regulation) Act, 1956, the Central Government specified contracts of pre-emption as contained in promotion or collaboration agreements or in the Articles of Association of a Limited Company as contracts to which the said Act shall no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n there ought to be an express provision in that behalf. Inasmuch as, the sweep of section 111A was intended mainly to restrict the right of Directors of the Company to refuse transfer of a member's shares. It is not intended to and does not affect the right of shareholders to deal with their specific shares or to enter into any consensual arrangement or agreement regarding their shares (by way of pledge, pre-emption, sale or otherwise). That position is reinforced even from the objects and reasons of the Act in question. Further, reliance is placed on the legislative history which indicates that prior to coming into force of section 111A of the Companies Act, similar provision was introduced in the Securities Contracts (Regulations) Act, 1985. Section 22A thereof provided that Securities of Companies shall be freely transferable. The said provision also restricted companies right to refuse registration of transfer only on four specified grounds mentioned therein. That is reinforced from the objects and reasons of the Amending Act of 1985. It makes it clear that the provision was intended to restrict the right of the Board of Directors to refuse registration of transfer of shares o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer of members share. Reliance has been placed on the decision in the case of ICICI Bank Ltd. v. SIDCO Leathers Ltd. 2006 (10) SCC 4521 at paras 41-43 and in the case of Byram Pestonji Gariwala v. Union Bank of India [1992] 1 SCC 31 and at paras 28-30 and 35. Reliance has also been placed on the exemption notification dated 27-6-1961 issued under section 28 of the Securities Contracts (Regulation) Act, 1956 by the Central Government exempting contracts for pre-emption or similar rights contained in the Promotion or Collaboration Agreements or any Articles of Association of limited company on the ground that such contracts were in the interest of trade and commerce or the economic development of the country. Even for this reason, it is contended that, it cannot be presumed that Legislature while enacting section 111A impliedly intended to make the agreements referred to in the abovementioned notification illegal or invalid. 49. As is noticed earlier, the plaintiffs and defendant No. 1 have already amicably resolved their disputes inter se by agreement dated 5-12-2002. Neither the defendant No. 3 nor the defendant No. 4 is party to the said agreement. Challenge to the terms containe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quires, "company" means a company other than a company referred to in sub-section (14) of section 111 of this Act. (2) Subject to the provisions of this section, the shares or debentures and any interest therein of a company shall be freely transferable : [Provided that if a company without sufficient cause refuses to register transfer of shares within two months from the date on which the instrument of transfer or the intimation of transfer, as the case may be, is delivered to the company, the transferee may appeal to the Company Law Board and it shall direct such company to register the transfer of shares.] [(3) The Company Law Board may, on an application made by a depository, company, participant or investor or the Securities Exchange Board of India, if the transfer of shares or debentures is in contravention of any of the provisions of the Securities and Exchange Board of India Act, 1992 (15 of 1992), or regulations made thereunder of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986), or any other law for the time being in force, within two months from the date of transfer of any shares or debentures held by a depository or from the date on which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o long as it is in conformity with the terms of Articles of Association and other provisions of the Act and the Rules. Whereas, section 111A is a provision mandating the Board of Directors of the company to transfer shares in the name of the transferee, subject to the stipulations in section 111A of the Act. The expression "freely transferable" therein is in the context of the mandate against the Board of Directors to register the transfer of specified shares of the members in the name of the transferee, unless there is sufficient cause for not doing so. The said provision cannot be construed to mean that it also intends to take away the right of the shareholder to enter into consensual arrangement/agreement with the purchaser of their specific shares. If the Legislature intended to take away that right of the shareholder, it would have made an express provision in that regard. Reliance has been rightly placed on the decision of the Apex Court in the case of Byram Pestonji Gariwala (supra) which takes the view that the freedom of contract generally, the Legislature does not interfere except when warranted by public policy, and the "legislative intent is expressly made manifest". Ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare in favour of new shareholder. In the latter case, the company comes into the picture only for the purpose of recognition of transferee as the new shareholder. It is also noted that it is not necessary for the company to be a party in any agreement relating to the transfers of issued shares for such arrangement to be specifically enforced between the parties to the transfer. Notably, in S.P. Jain's case (supra), the company was a public company at the relevant time during which alleged oppression was caused in violation of the agreement by the two shareholders qua S.P. Jain. In Paragraph 142 of the reported decision, the Apex Court has noted that the Judgment in the case of S.P. Jain (supra) does not in any way hold that transfer of shares agreed between shareholders inter se does not bind them or cannot be enforced like any other agreement. That means that it is open to the shareholders to enter into consensual agreements which are not in conflict with the Articles of Association, the Act and the Rules, in relation to the specific shares held by them; and such agreement can be enforced like any other agreement. That does not impede the free transferability of shares at all. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich refers to any agreement executed, is in respect of an agreement executed by the company; and not by the shareholder with third party-which is a private consensual arrangement/agreement to which the company is not a party. As aforesaid, section 111A is not a law dealing with the right of the shareholders to enter into consensual arrangement/agreement by way of pledge, pre-emption/sale or otherwise. If that right is not covered by section 111A of the Act as has been found by us, then consensual arrangement/agreement between shareholder and third party or shareholders inter se to which company is not a party, section 9 of the Act will not come into play at all. Thus, the expression "freely transferable" in section 111A does not mean that the shareholder cannot enter into consensual arrangement/agreement with the third party (proposed transferee) in relation to his specific shares. If the company wants to even prohibit that right of the shareholders, may have to provide for an express condition in the Articles of Association or in the Act and Rules, as the case may be, in that behalf. The legal provision as obtained in the form of section 111A of the Companies Act does not express ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been transferred in the name of defendant No. 4. So long as the said transfer does not take place, the defendant No. 4 cannot claim any right whatsoever. If the defendant No. 4 were to lodge the shares for transfer with the defendant No. 2 company, the Board of Directors may be within its right to refuse to register transfer inter alia on the ground that the transfer if granted would cause serious prejudice to the company as the transferee is controlled by the management who are business rivals of defendant No. 2 company. We, however, express no opinion on that matter. 60. It was then contended that both the suits will have to be dismissed on the principle laid down by the Apex Court in the case of Prem Raj v. D.L.F. Housing and Construction (P.) Ltd. AIR 1968 SC 1355. In the said case the Court had occasion to consider some what similar situation. On construing section 37 of the Specific Relief Act, the Court opined that the same expressly provides that a plaintiff suing for Specific Performance of the contract can alternatively sue for rescission of the contract but the converse is not provided. It went on to hold that it is not open to the plaintiffs to sue for rescission of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he agreement already executed with defendant No. 3. As per the said agreement, the Goyal Group were to eventually take over the management of defendant No. 2 company. Had that position been disclosed, the plaintiffs would not have ventured into executing the SPA dated 23-6-1997 in favour of defendant No. 1. There was no compulsion for the plaintiffs to sell their shares. The plaintiffs agreed to sell the shares to defendant No. 1 on the solemn hope given to them that the defendant No. 1 would take over the substantial majority shareholding of the defendant No. 2 so as to segment the productivity of defendant No. 2 company and consequently its profit. The record also reinforces the stand of the plaintiffs that after they were informed about the possible involvement of defendant No. 3 or the Goyal Group, it was made clear to the defendant No. 1 that such association was unacceptable to the plaintiffs. Suffice it to observe that the finding recorded by the Learned Single Judge that it was a case of misrepresentation and fraud committed on the plaintiffs at the time of execution of the first SPA dated 23-6-1997 is unexceptionable. 62. Even the finding regarding misrepresentation or fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 to take over the management of defendant No. 2 company. It is noticed that the defendant No. 3 is controlled by Goyal Group who are known to be business rivals of the plaintiffs. The plaintiffs are till date controlling the defendant No. 2 company. As a result, the prima facie opinion recorded by the Learned Single Judge on the factum of misrepresentation and fraud committed on the plaintiffs merits no interference. 63. The argument that at some stage the defendant No. 1 unilaterally proceeded to strike the deal with plaintiffs would make no difference to the said conclusion. As noticed earlier, the Learned Single Judge has found that even the subsequent acts of the defendant No. 1 and defendant No. 3 and of forming defendant No. 4 Joint Venture Company was nothing short of misrepresentation and fraud and in furtherance of the common design of the defendant No. 1 and defendant No. 3 to take over the management of defendant No. 2 company. The principal actor in the said concerted effort and the beneficiary were to be the Goyal Group. Accordingly, the plaintiffs have made out prima facie case that the first SPA dated 23-6-1997 is vitiated on account of misrepresentation and fraud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt No. 1 in favour of defendant No. 4 was in breach of order of injunction. Ordinarily, this issue could have been answered at the outset. For, if it were to be answered against the contesting defendants no other enquiry would be necessary. However, the order of injunction in this case is to restrain transfer of shares held by defendant No. 1 in breach of clause 6.1 of the SPA. For that reason it became necessary to first consider the efficacy of clause 6.1 of SPA and also to ascertain whether the transfer effected on 17-2-2000 by defendant No. 1 in favour of defendant No. 4 violated that clause. On both these aspects we have answered the issue in favour of the plaintiffs. In our opinion, the transfer of shares in favour of defendant No. 4 by defendant No. 1 were only subterfuge to show as if it was in conformity with the injunction order passed by this Court which was operating at the relevant time and continues to operate even till now. The defendant No. 4, in view of the affidavit filed by the authorised officer of the defendant No. 1, is, admittedly, not a subsidiary of defendant No. 1 or Hoechst Group of Company. As a result, the second transfer, dated 17th February, 2000 of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the defendant No. 3 had filed suit in Delhi High Court challenging the SPA dated 23-6-1997. The said suit, however, has been withdrawn on the premise that in view of the settlement between plaintiffs and defendant No. 1 dated 5-12-2002 of rescinding the SPA dated 23-6-1997, nothing survives in the said suit. The defendant No. 3 has, however, not challenged the agreement arrived at between the defendant No. 1 and plaintiffs on 5-12-2002. If that agreement prevails and for the opinion recorded by us hitherto, that the second transfer of shares by defendant No. 1 in favour of defendant No. 4 on 17-2-2000 was violative of order of injunction passed by this Court dated 6-5-1999, 8-6-1999 and 29-2-2000, the inevitable effect would be to ignore the agreement between defendant No. 1 and defendant No. 4 dated 17-2-2000 as being void and non-existant in law. In that case, it is unnecessary to examine the question of violation of SEBI Regulations in relation to the second transaction. 68. It was argued that the Civil Court had no jurisdiction to answer the controversy which was within the purview of SEBI Regulations. That contention could be answered only by the designated forum under the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 23-6-1997 was invalid, the 30,000 shares so purchased will have to be restored to the seller thereof. However, that exercise may be impractical as the individual shareholders who have sold those 30,000 shares to defendant No. 1 may not be contactable and even if contacted may not be interested in taking back the shares in view of the changed market conditions. The shares purchased by the defendant No. 1 was at the rate of Rs. 3,000 per share. However, at the same time, neither the defendant No. 1 nor any person claiming through the said person can be allowed to take advantage of his own wrong. That may be necessary in public interest and to preserve public policy. The plaintiffs can compensate the defendant No. 1 for the price to be paid in respect of those 30,000 shares to the defendant No. 1. That is a matter which has already been resolved between the plaintiffs and defendant No. 1. In any case, at the appropriate stage, the Court can always issue such directions as may be necessary in that regard. Taking any view of the matter, therefore, even if 30,000 shares have been purchased by the defendant No. 1 from public, the plaintiffs are entitled to ask for appropriate relief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are not entitled to the property of the company. As of now, the defendant No. 4 are not even shareholders. Even if they were justified in contending that in the event they succeed in getting registration of shares in its name as a shareholder, its right would be limited to attending and voting at meetings to get dividend when declared and share in the distribution of the surplus assets on the winding up of the company. 71. It is rightly argued on behalf of the plaintiffs as well as defendant No. 2 company that the application taken out by the defendant No. 4 was not within the purview of Order 39 rule 1(a). In any case, that application could not have been filed by the defendant No. 4 in the face of order passed by this Court dated 26-3-2003 restraining them from claiming any right in respect of the disputed shares. If the relief claimed by the defendant No. 4 were to be granted, it would result in overlooking the injunction operating against them in terms of order dated 26-3-2003. 72. Taking any view of the matter, therefore, the relief as claimed by the defendant No. 4 cannot be countenanced. The Learned Single Judge in our opinion has rightly considered this material aspect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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